Summit Hotel Properties, Inc.

Thank you for standing by and welcome to Summit Hotel Properties second quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Mr. Adam Waddell, Senior Vice President of Finance, Capital Market, and Treasurer. Please go ahead.

Thank you, Lateef, and good morning. I am joined today by Summit Hotel Properties President and Chief Executive Officer John Stanner and Executive Vice President and Chief Financial Officer Trey Conkling. Please note that many of our comments today are considered forward-looking statements as defined by federal securities laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our SEC filings. Forward-looking statements that we make today are effective only as of today, August 3rd, 2022, and we undertake no duty to update them later. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at www.shpreed.com. Please welcome Summit Hotel Properties President and Chief Executive Officer, John Stanner.

Thanks Adam and thank you all for joining us today for our second quarter 2022 earnings conference call. Our second quarter results mark new pandemic era highs in nearly every relevant operating metric driven by continued strength and leisure travel and supplemented with accelerating recoveries in business transient and group demand as growth in our portfolio increasingly shifts midweek into our high quality urban assets. Second quarter pro forma REVPAR increased approximately 54% from the second quarter of last year. driven by a 12.5% increase in occupancy and a 37% increase in ADR. In our portfolio of 92 hotels with comparable 2019 results, RIFPAR recapture reached 93% of 2019 levels, a significant improvement from the 79% recapture we achieved in the first quarter and highlighted by June's 96% recapture rate, the highest of any month since the onset of the pandemic. Hotel EBITDA recapture in this portfolio was 89% of 2019 second quarter results, as the benefits of a lean staffing model have helped offset wage pressures being driven by a tight labor market. We continue to benefit from meaningful pricing power throughout the portfolio, as average rates increased in every segment of our business over the first quarter and now exceed 2019 levels in all but our negotiated segments. For the quarter, comparable portfolio ADR was 2% higher than the second quarter of 2019. While resort and small town locations continue to achieve rates well in excess of 2019 levels of 16% and 11% respectively, rates in our urban portfolio exceeded 2019 by over 3%, reflecting rapidly improving midweek corporate and group demand. Weekday pro forma RevPAR increased 26% from the first quarter and 67% from the same period last year. Weekday occupancy was more than 71% for the quarter, with June posting a pandemic-era high of nearly 74%. Our weekend RevPAR recapture rates continue to meaningfully exceed 2019 levels, and encouragingly, Monday through Wednesday nights are seeing the greatest improvements and now all exceed 80% recapture compared to below 70% in the first quarter. Weekday rates increased in every major segment during the quarter. And in June, weekday rates were within 4% of weekend rates. The group segment's recovery was particularly notable in the second quarter, as group room night contribution reached 15% of our total portfolio mix, essentially flat to pre-pandemic levels. And rates were modestly above 2019. As expected, June was our strongest month since the onset of the pandemic, achieving new highs in absolute rev par RevPAR recapture and average rates, which were nearly 5% higher than June of 2019. Pro forma gross operating profit margins also reached a new peak of just under 48%, which represented 125 basis points of margin expansion over June of last year. Preliminary July nominal RevPAR is expected to decline modestly from June, consistent with historical seasonal patterns, but result in a comparable 2019 RevPAR recapture rate in line with what was achieved in the second quarter. August tends to be a slightly weaker seasonal month in our portfolio, which is reflected in our current pace that is down compared to our pace for July a month ago. So once again, we expect 2019 recapture rates to hold fairly steady month over month. However, we are very encouraged by the pace trends in our portfolio in September and October. particularly within the recently acquired new Crest Image portfolio and our urban properties, which are seeing significant month-over-month pace increases for both weekdays and weekends. September RevPAR is pacing 14% ahead of August in our pro forma portfolio, which positions us to achieve recapture rates to 2019 that are in line or potentially above the highs we experienced in June. Combined with our healthy recovery in July and expectations for August, we expect third quarter recapture in our comparable portfolio to be generally in line with the second quarter. But it's still very early in our booking window. Our optimism for the fall is further supported by our October pace, which is 12% ahead of September and has historically been one of the strongest months in our portfolio. Our strong operating results and the continued progress we've made enhancing our balance sheet have positioned us to reinstate a quarterly common dividend. Yesterday, our Board of Directors declared a $0.04 per share quarterly common dividend, which equates to $0.16 per share on an annualized basis and roughly a 2% annualized dividend yield. We've been prudent to size the dividend so that it can be meaningfully increased over time if the current fundamental recovery in our business continues uninterrupted, but also to be sustainable if we experience a reduction in demand from our baseline expectations. Prior to the pandemic, we had a strong track record of paying common dividends, which grew over 60% from the time of the IPO, equating to a 5% dividend CAGR over that 10-year period. We've remained active on the transaction front, and during the second quarter, we closed on two previously announced transactions. In May, we closed on the sale of the 169-guest room Hilton Garden Inn San Francisco Airport North Hotel, previously owned in our joint venture with GIC, for $75 million. and we realized a net gain of $20.5 million in less than three full years of ownership. The sale price reflects a trailing 12-month NOI cap rate of approximately 1% as of March 31st. As a reminder, the sale also allowed us to forego a $7 million renovation that was scheduled to begin later this year. In June, we successfully closed on the equity purchase option to acquire a 90% interest in the newly constructed 264-guest room AC element dual-branded hotel in downtown Miami's Brickell neighborhood at a valuation of $89 million, or $337,000 per key. The hotel features Rosa Sky, recently named as one of Miami's best rooftop bars, which has generated, on average, nearly $500,000 of revenue in each month since its opening. The hotels have ramped incredibly quickly since their December 2021 opening, generating year-to-date rev par of approximately $170, despite being in the slower summer season in Miami. For the full year 2022, we anticipate the hotels will generate a combined hotel EBITDA yield on our option price between 8% and 9%, effectively in their first 12 months of operations. Our 31 recently acquired hotels continue to perform very well, as forecasted EBITDA is trending to finish nearly 10% above 2022 underwriting, despite the delayed opening of the canopy New Orleans down. We remain particularly bullish on the longer-term outlook for the new Crest Image portfolio, as we expect to begin to realize the benefits of recently implemented asset and revenue management strategies as early as the second half of this year, and continue to believe the concentration of assets in high-growth Sunbelt markets are poised to outperform over the next several years. Our other recent acquisitions continue to vastly exceed expectations, as the Residence Inn Steamboat, the Embassy Suites Tucson, and the dual-brand AC Element Brickell Miami are collectively pacing more than 40% above our underwritten 2022 hotel EBITDA levels. Combined, for the 31 hotels acquired since June 30th of last year, we expect our blended 2022 EBITDA yield to be approximately 7%. As a reminder, nearly half of the hotels we acquired have opened within the past four years, implying there is still considerable upside in many of these assets. With that, I'll turn the call over to our CFO, Trey Conklin.